TY - JOUR
AU - Ramey,Valerie A.
TI - Government Spending and Private Activity
JF - National Bureau of Economic Research Working Paper Series
VL - No. 17787
PY - 2012
Y2 - January 2012
DO - 10.3386/w17787
UR - http://www.nber.org/papers/w17787
L1 - http://www.nber.org/papers/w17787.pdf
N1 - Author contact info:
Valerie A. Ramey
Department of Economics, 0508
University of California, San Diego
9500 Gilman Drive
La Jolla, CA 92093-0508
Tel: 858/534-2388
Fax: 858/534-7040
E-Mail: vramey@ucsd.edu
M1 - published as Valerie A. Ramey. "Government Spending and Private Activity," in Alberto Alesina and Francesco Giavazzi, editors, "Fiscal Policy after the Financial Crisis" University of Chicago Press (2013)
M3 - presented at "Fiscal Policy after the Financial Crisis", December 12-13, 2011
AB - This paper asks whether increases in government spending stimulate private activity. The first part of the paper studies private spending. Using a variety of identification methods and samples, I find that in most cases private spending falls significantly in response to an increase in government spending. These results imply that the average GDP multiplier lies below unity. In order to determine whether concurrent increases in tax rates dampen the spending multiplier, I use two different methods to adjust for tax effects. Neither method suggests significant effects of current tax rate changes on the spending multiplier. In the second part of the paper, I explore the effects of government spending on labor markets. I find that increases in government spending lower unemployment. Most specifications and samples imply, however, that virtually all of the effect is through an increase in government employment, not private employment. I thus conclude that on balance government spending does not appear to stimulate private activity.
ER -